Vontier Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Vontier is a global industrial technology company with Mobility Technologies, Repair Solutions, and Environmental & Fueling Solutions reportable segments. Segment reporting was realigned in Q1 2023; prior-period segment figures were recast.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Sales | $764.4 million | $776.4 million | $1,540.8 million | $1,524.5 million |
| Gross profit | $348.1 million | $348.1 million | $701.1 million | $683.4 million |
| Operating profit | $120.6 million | $136.5 million | $254.4 million | $271.3 million |
| Net earnings | $97.3 million | $33.3 million | $180.1 million | $283.5 million |
| Diluted EPS | $0.62 | $0.21 | $1.15 | $1.73 |
| Gross margin | 45.5% | 44.8% | 45.5% | 44.8% |
| Operating margin | 15.8% | 17.6% | 16.5% | 17.8% |
Q2 sales declined 1.5% year over year; first-half sales increased 1.1%. Operating profit fell 11.6% in Q2 and 6.2% for the first half. SG&A and R&D costs rose, including restructuring, stock compensation, and acquisition-related costs. Net earnings comparisons are affected by unusual non-operating items: Q2 2023 included a $34.1 million gain on sale of a business, while Q2 2022 included an $80.0 million unrealized loss on equity securities. First-half 2022 also included $32.7 million of gain on a previously held Driivz interest and an $83.0 million unrealized equity-securities gain.
Segment trends: Q2 Mobility Technologies sales rose 13.4% and Repair Solutions rose 5.8%; Environmental & Fueling Solutions sales declined 9.6%, primarily reflecting the end of the U.S. EMV outdoor-payment upgrade cycle. For the first half, the respective sales changes were +15.9%, +8.2%, and -7.2%.
Cash flow and liquidity: First-half operating cash flow was $158.5 million, versus $48.5 million a year earlier. Investing activities provided $103.5 million, including $106.8 million net proceeds from the Global Traffic Technologies sale; capital expenditures were $26.1 million. Financing activities used $222.6 million, including $165.0 million of term-loan repayments and $50.0 million of share repurchases. Cash was $244.0 million at June 30, 2023, and the company reported $750.0 million of available revolving-credit capacity.
Debt: Long-term debt, net, was $2,422.4 million at June 30, down from $2,585.7 million at December 31, 2022; short-term borrowings were $8.7 million. Variable-rate term loans carried rates of 6.34% and 6.45% at quarter-end. Net interest expense increased to $23.9 million in Q2 and $47.9 million for the first half, mainly due to higher rates on variable-rate debt. The company said it complied with debt covenants. It repaid a further $35 million of 2024 term loans in July 2023.
Outlook, risks, and notable items
- Management expects 2023 total and core sales to decline year over year, primarily due to the end of the U.S. EMV upgrade cycle; excluding that impact, it expects core sales to increase mid-single digits.
- Outlook is subject to economic and market conditions, supply-chain and electronic-component availability, logistics, the Russia-Ukraine conflict, and potential energy disruption in Europe. Management said the Russia-Ukraine conflict and macroeconomic conditions were not believed to be material to the company as of the filing date.
- Global Traffic Technologies was sold on April 14, 2023, for $108.0 million, subject to working-capital adjustments; Vontier recorded a preliminary $34.1 million gain. Coats (Hennessy) remained classified as held for sale, with $53.5 million in assets and $29.0 million in liabilities.
- Asbestos-related claims had $103.6 million of gross liabilities and $66.4 million of projected insurance recoveries at June 30, 2023. Standby letters of credit, bank guarantees, and other guarantees totaled approximately $84.8 million; management did not expect triggered obligations to materially affect the financial statements. Management did not believe ordinary-course legal proceedings would have a material adverse effect.
- Other disclosed risks include indebtedness and debt service, supply-chain disruptions, customer demand and channel-partner conditions, technology and cybersecurity risks, foreign exchange, regulation, litigation, and possible impairment of goodwill or intangible assets. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Assess the extent to which the sales outlook depends on the EMV upgrade-cycle comparison and whether growth excluding that impact materializes.
- Separate recurring operating performance from the Global Traffic Technologies gain and the prior-year equity-security and Driivz valuation items.
- Track operating expenses, segment margins, and restructuring costs, particularly in Mobility Technologies and corporate costs.
- Monitor variable-rate debt, interest expense, scheduled maturities, cash generation, and continued covenant compliance.
- Verify completion and final proceeds or adjustments for the Global Traffic Technologies sale and the status and terms of the Coats (Hennessy) disposition.
- Follow credit-loss trends in financing receivables and developments in asbestos claims, insurance recoveries, and other contingencies.